Cash, derivatives volumes sink as oil, yields roil sentiment

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Mumbai: Trading activity in Indian stock markets fell sharply in the September quarter, with volumes in both the cash and derivatives segments declining as rising global bond yields, foreign outflows and new regulatory curbs on traders weighed on sentiment.
The combined average daily equity cash volume of NSE and BSE fell 11.7% sequentially to ₹1.29 trillion in July-September, reversing a 13% rise in the preceding quarter, according to exchange data. The combined average daily index-options premium volume fell by a sharper 27% to ₹63,326 crore over the same period—extending an 11% decline in the April-June quarter, and marking a second straight quarterly drop.
The slowdown reflects a confluence of pressures. A surge in oil prices, driven by the US-Iran war and disruptions to global supplies, has pushed up bond yields and heightened volatility, while US Treasury yields—at their highest level in more than two decades—have driven foreign investors out of Indian assets. A revival in volumes may hinge on two swing factors: a de-escalation of the war in West Asia, and whether the market regulator delays rules pertaining to weekly options settlement on expiry days.
"Incremental flows have clearly reduced as investors have been losing by averaging on the downside, which is behind fewer transactions in both cash and derivatives segments," said independent market analyst Ambareesh Baliga.
Baliga also said, the Reserve Bank of India's (RBI's) funding curbs on proprietary traders, and teething troubles with the Securities and Exchange Board of India's (Sebi's) newly introduced closing auction, have dented domestic participation in both cash and derivatives markets.
Stocks underperform
The Nifty 500, which represents the top 500 listed large-, mid- and small-cap companies on the NSE, declined 4% to 22,072 during the September quarter—a sharp reversal from the nearly 10% gain it posted in the first quarter of the current fiscal year (FY27).
The reversal mirrors oil's own swing. Brent crude rose 34% to $98 a barrel during the September quarter, after sliding 38% to $73 a barrel in the June quarter, according to Investing.com. The sharp rise in crude prices has been a primary reason for the market’s underperformance.
Foreign portfolio investors sold ₹1.38 trillion of Indian equities in the fiscal year through 1 October, after a record ₹1.8 trillion of selling in fiscal year 2026 (FY26), adding to market volatility and weighing on overall participation.
Yields harden
Following this, the yield on the benchmark 10-year Indian government bond rose 43 basis points (one basis point is one-hundredth of a percentage point) to 7.18% during the September quarter, according to Investing.com. Hopes of a resolution to the West Asia conflict had driven the yield down by 21 basis points to 6.75% during the first quarter.
Other factors weighing on volumes include an RBI regulation requiring banks to fund proprietary traders—one of the biggest participants in the market—only against full collateral from July, and the new closing-auction session introduced by Sebi from 3 August. The latter, which replaced volume-weighted continuous trading during the last 15 minutes of the trading session, has been plagued by liquidity issues, distorting prices on weekly expiry of index options such as Nifty and Sensex .
“Q2 has been a bit challenging for the broking industry,” said Ashish Nanda, chief digital business officer at Kotak Neo, underscoring the fall in volumes.
Mixed view
Analysts remain divided on the prospects for a recovery in volumes, especially in the cash market, but expect options volumes to pick up if Sebi defers the CAS (Closing Auction Session) requirement for derivatives settlements on weekly expiry days.
“Sebi is likely to defer the CAS for derivatives settlement on weekly expiry days for a year, while retaining it on non-expiry days, so many persons absent from derivatives trading will return to the fold and volumes will rise,” said DK Aggarwal, chairman and managing director of SMC Capitals Ltd. “I expect cash market volumes to pick up too, especially if crude remains at or below $100 a barrel.''
However, S.K. Joshi, consultant at Khambatta Securities, said that while he expects options volumes to pick up, cash-market volumes could remain subdued amid higher market volatility.

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